SHANGHAI, Sept 5 (Reuters) - Offshore investors lifted their holdings of Chinese government bonds (CGBs) to a record high in August, extending a streak of capital inflows that have defied broader global flight from emerging market debt.

Investors outside of mainland China boosted their CGB positions by 53.9 billion yuan in July to 1.03 trillion yuan ($150.58 billion), according to Reuters’ calculations based on data from China Central Depository and Clearing Co (CCDC), the country’s primary bond clearing house.

It is the first time offshore government bond holdings have exceeded 1 trillion yuan.

Global investors have now increased their China bond holdings for 18 straight months, bringing the proportion of outstanding Chinese government bonds held by offshore institutions to a record 8.0 percent.

The enthusiasm for Chinese bonds stands in stark contrast to other emerging markets, as fears of currency contagion from Argentina, South Africa and Turkey have shaken investors’ nerves, pushing up the U.S dollar.

Chen Long, China economist at Gavekal Dragonomics in Beijing, said that a fall in the yuan this year has not had a material impact in investors’ decisions.

“People sometimes say, ‘oh the RMB is going down, so why are people buying RMB bonds?’” he said.

“Come on, if you’re an EM fixed income portfolio manager ...you are choosing between China and Turkey or Argentina. So OK, I’ll probably buy more China. That’s the calculation.”

He said increased interest in China could even push some institutional investors to cut their positions in other EM bonds.

Yields on benchmark 10-year Chinese government bonds have fallen more than 47 basis points from highs in late January, and are now around 3.65 percent, while the yuan has fallen nearly 9 percent from its strongest point in March.

Furthermore, market players expect to see the pace of investment pick up as Chinese regulators improve access to the world’s third-largest bond market and offer tax incentives.

MORE INCENTIVES, FEWER BARRIERS

China’s cabinet said in late August that foreign investors would be exempt from enterprise or value added taxes on interest income earned in the domestic bond market for three years.

Reuters reported on Aug. 24 that China had implemented real-time delivery-versus-payment (DVP) settlement for transactions through its Bond Connect scheme, cleared through CCDC.

The lack of such a settlement system had been seen as the last major issue preventing European Undertakings for Collective Investment in Transferable Securities (UCITS) funds from investing in China’s bond market through Bond Connect.

It subsequently announced the launch of block trade allocations in a move the company said would simplify investors’ trading strategy.

On Wednesday, fixed-income trading platform Tradeweb announced that it was also able to facilitate the allocation of block orders in Chinese bonds, and said it expected real-time DVP settlement, tax incentives and facilitating block orders to allow offshore institutions “to invest far more easily in the Chinese domestic bond market.”

DVP settlement and block trade allocations are two conditions for the inclusion of China’s bond market in the Bloomberg Barclays Global Aggregate Index.

The index, the first major global index to include Chinese bonds, will phase in inclusion of Chinese bonds over a 20-month period starting April 2019. ($1 = 6.8401 Chinese yuan) (Reporting by Andrew Galbraith; Editing by Kim Coghill)